The Role of Actors and Subnational Dynamics in Shaping Patterns of Variable Pay in Belgian Subsidiaries of Multinational Companies

Financialization, the dispersion of the global value chain, and the complexity of interaction networks within a multinational company (Morgan 2014, Palmisano 2006, Gereffi et al. 2005) have raised questions about their impact on national and subnational (local) institutions and their change. They do also contribute to challenge workers and the traditional systems of employment governance. Particularly, variable pay has been widely examined as an innovative and contested mechanism to enhance companies’ competitiveness while aligning shareholders’, managers’ and workers’ interests (Morgan 2014, Palpacuer 2012, Froud et al. 2000, Lazonick and O'Sullivan 2000). Variable pay has been considered one of the most frequently used transnational employment practices by multinationals to enhance competitiveness.

Literature on the transfer of employment practices within multinationals has shown that what is at play is not a simple transfer from the headquarters towards subsidiaries in different countries, and that one has to consider the interplay between home-country and host-country institutional contexts (Morgan and Kristensen 2006, Almond et al. 2005) and the global context (Edwards and Kuruvilla 2005). It has also been argued that there is a need to consider more closely the role of management at the headquarters and local management and other stakeholders such as trade unions in order to understand how employment practices are transferred across borders (Ferner et al. 2012, Edwards et al. 2007, Pulignano 2006). It links more generally to those studies taking into account subnational institutional dynamics (Almond 2011, Lane and Wood 2009), as well as the micro-political dimension between actors including their preferences and interests for variable pay, and their capabilities (Bélanger et al. 2013) reflecting their balance of power.

In this paper, we aim at understanding what factors shape different patterns of variable pay which can be seen as an HRM tool of coordination and control design to align stakeholders' interest and to support firm’s global strategy. We consider three different types of variable pay practices. A first category includes compensation practices relying on a “rational” type of control that is, a measure of worker’s effort or productivity based on ex-ante targets. The other two categories embrace reward practices which represent a “normative” (softer) form of control by enhancing worker’s organizational identification and commitment. Here, we distinguish short term-oriented reward practices such as profits redistribution from long term-oriented practices such as share ownership schemes or stock options. 

The paper intends to answer to two research questions. First, how do multinational companies contribute to shaping different patterns of variable pay practices in Belgium, at the expense of fixed wages resulting from collective bargaining at sectoral level? Secondly, what is the role of local actors, such as the Belgian subsidiary and workers representatives, in the use of compensation and reward practices, according to their preferences and their power resources enhancing their capacity of action?

We draw from representative survey data which was conducted as part of the INTREPID network (Pulignano et al. 2014). The survey includes 194 subsidiaries of multinational companies operating in Belgium, with a response rate of 38 %. Findings are based on regression analysis of the quantitative data clustered within the above mentioned survey.  Results of the analysis illustrate different factors which explain the different types of variable pay in the subsidiaries within (and across) diverse multinational companies operating in Belgium. In particular, subnational and local factors emerge as relevant. For example, decentralised collective bargaining or high trade union density has an impact on compensation practices and profits distribution. Another local factor, the degree of subsidiaries’ local embeddedness, is also of much importance. Aside those factors, global influences are significant. Among those we mention the global business strategy of the multinational company, the property mode of the parent company, and the position of the subsidiary in the global value chain.

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